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Impact of environmental regulations on trade in the main EU countries: conflict or synergy?

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  • de santis, roberta

Abstract

In an increasingly integrated world with declining trade barriers, environmental regulations can have a decisive role in shaping countries’ comparative advantages. The conventional wisdom about environmental protection is that it comes at an additional cost on firms imposed by the government, which may erode their global competitiveness. However, this paradigm has been challenged by some analysts. In particular, Porter (1991) and Porter and Van der Linde (1995) argue that pollution is often associated with a waste of resources and that more stringent environmental policies can stimulate innovations that may over-compensate for the costs of complying with these policies. This is known as the Porter hypothesis. While there is a broad empirical literature on the impact of trade on environment the empirical literature on the impact of environmental regulations on trade flows is relatively scarce, very heterogeneous and presents mixed results. The innovative feature of this paper is its attempts to estimate, in a gravity setting, augmented with a proxi of environmental stringency, the impact of three major Multilateral Environmental Agreements (MEAs) on 15 EU countries bilateral exports. According to our estimates, in the period 1988-2008, to be member of MEAs had a positive average impact on EU15 bilateral exports. This evidence can be partly explained by a possible trade diversion effect with respect to countries that did not sign MEAs, and a corresponding trade creation effect among members of the environmental agreements. Furthermore, evidence coming from interaction effects estimates seems to show that for exporting countries having signed the UNFCCC and the Montreal agreements, partly mitigates (by the amount of the estimated coefficient ) the negative impact of having a relatively more stringent environmental regulation on bilateral trade. This result could have important policy implications for the future international trade- environmental negotiations.

Suggested Citation

  • de santis, roberta, 2011. "Impact of environmental regulations on trade in the main EU countries: conflict or synergy?," MPRA Paper 37756, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:37756
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    1. repec:ebl:ecbull:eb-17-00999 is not listed on IDEAS
    2. Roberta DE SANTIS, 2012. "The Impact Of Growth On Biodiversity: An Empirical Assessment," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 7(3(21)/ Fa), pages 283-290.
    3. Somlanare Romuald KINDA & Pascale COMBES MOTEL & Jean-Louis COMBES, 2014. "Do Environmental Policies Hurt Trade Performance?," Working Papers 201404, CERDI.
    4. Cavalletti, Barbara & Borino, Floriana, 2015. "The Challenge of Analysing the Impact of Environmental Policy on Competitiveness - L’analisi dell’impatto della politica ambientale sulla competitività: una sfida ancora aperta," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 68(2), pages 153-171.
    5. Teemu Makkonen & Sari Repka, 2016. "The innovation inducement impact of environmental regulations on maritime transport: a literature review," International Journal of Innovation and Sustainable Development, Inderscience Enterprises Ltd, vol. 10(1), pages 69-86.
    6. Doganay, Seda Meyveci & Sayek, Selin & Taskin, Fatma, 2014. "Is environmental efficiency trade inducing or trade hindering?," Energy Economics, Elsevier, vol. 44(C), pages 340-349.
    7. Morales-Lage, Rafael & Bengochea-Morancho, Aurelia & Martínez-Zarzoso, Inmaculada, 2016. "Does environmental policy stringency foster innovation and productivity in OECD countries?," Center for European, Governance and Economic Development Research Discussion Papers 282, University of Goettingen, Department of Economics.
    8. de santis, roberta, 2012. "Trade, FDI, growth and biodiversity: an empirical analysis for the main OECD countries," MPRA Paper 37730, University Library of Munich, Germany.
    9. Caporale, Guglielmo Maria & De Santis, Roberta & Girardi, Alessandro, 2015. "Trade intensity and output synchronisation: On the endogeneity properties of EMU," Journal of Financial Stability, Elsevier, vol. 16(C), pages 154-163.
    10. De Santis R. & Jona Lasinio C., 2016. "Environmental Policies, Innovation and Productivity in the EU," Global Economy Journal, De Gruyter, vol. 16(4), pages 615-635, December.
    11. Roberta De Santis & Cecilia Jona Lasinio, 2015. "Environmental Policies, Innovation and Productivity in EU," Working Papers LuissLab 15122, Dipartimento di Economia e Finanza, LUISS Guido Carli.

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    Keywords

    Comparative advantage; environmental regulation; trade;

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment

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